The UK manufacturing PMI for May was finalised at 46.4, an increase from the preliminary reading of 45.1 and the prior month’s figure of 45.4. The data from S&P Global on 2 June 2025 points to ongoing challenges in the manufacturing sector amid turbulent domestic and overseas market conditions.

Input cost and selling price inflation have shown signs of easing. However, output, new orders, and export businesses continued to experience downturns. Smaller manufacturers are particularly affected, with steep declines in output and demand, leading to low business confidence and increased job losses.

Hints Of Improvement

There are hints of improvement, as indices for output and new orders have improved over the past two months, surpassing preliminary estimates for May. Despite this, the trading environment remains difficult, both domestically and internationally, suggesting that the sector faces an uncertain immediate future, with potential for either stabilisation or further decline.

While the final manufacturing PMI figure for May shows a minor bump upwards—coming in at 46.4 from April’s 45.4—it still remains well under the 50-point mark, the level typically associated with expansion. This reinforces the idea that contraction is still firmly embedded in UK industry. The numbers imply that although conditions may not be worsening at the same pace, there’s no clear sign yet of a return to broad-based growth.

S&P’s data illuminated glimmers—slight, though not easily dismissed—of baseline improvements. The uptick in new orders and output, particularly being better than the earlier provisional reading suggested, offers modest encouragement. However, any reading in the 40s indicates that factories are still pulling back, just not as sharply as before. We can draw from this that activity remains subdued, and production managers are likely keeping tight control over output levels, recognising persistently soft demand.

The lower input costs and somewhat gentler selling price pressures could suggest easing supply chain burdens or stabilising transportation and raw material rates. This could reduce stress on margins for producers, but unless demand picks up notably, cost relief alone won’t deliver recovery. We shouldn’t mistake a slowdown in inflation for an improvement in economic momentum—it’s merely one ingredient in a broader mix.

Impact On Smaller Firms

Payne’s remarks provide decent insight into the tiered shape of the downturn. Larger firms may be weathering pressures better, but those working on a smaller scale are losing ground at a faster clip. Their challenges with cash flow and contracting order books are leading to trims in operational heft, and, in many cases, they’re cutting staff. This thinning out, particularly in employment, implies a reduced appetite for medium-term investment across supply chains and factory capacity.

The path hasn’t been straight, yet recent months do clarify something for us. While the pace of decline is slowing, the commercial environment demands caution. We should prepare for further data that may offer mixed signals—some pointing to slower deterioration, others reminding us how quickly conditions can shift. Given the shakeout in buyer interest both at home and abroad, we’re not assuming a firm footing just yet.

Our reading of the survey also underscores a divergence between the hard and soft elements of the dataset. Confidence levels have sunk again, which is noteworthy. In our experience, confidence tends to lead hiring intentions and capital outlays. When it starts running low, as we’re seeing among smaller producers in these readings, follow-on effects can become self-reinforcing.

As inflationary strain pulls back and order volumes hint at improving compared to March and April, we remain attentive. However, while there’s some basis for keeping close watch on price trends and order flows for positive signals, the risk profile for the near term still leans to the downside.

In priority terms, the focus should now be on input filtering and downstream pressure points. Pipeline strength will be tested, particularly as European demand plateaus and Asian suppliers remain aggressive on lead times. We’ve already seen the narrower margins at the mid-tier level beginning to bite. Traders should be forward-scanning here, weighing whether previous downside momentum has exhausted itself or if we’re simply witnessing a temporary slowing before another leg lower.

Such readings demand a reaction that’s both tactical and keyed to timing. Delays in positioning could mean caught-out entries, particularly if forward-looking indicators flash revised contraction signals when June PMI flash figures land in the coming fortnight. Those following open interest movement should stay alert to erratic sentiment response, particularly in second-tier industrial names where guidance has been hit and miss.

Thus, as sentiment flickers but doesn’t yet reacquire momentum, we remain tilted to assessing strength rather than assuming it.

Create your live VT Markets account and start trading now.